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Turkey’s inflation hits nearly 25 percent, far above market expectations

posted onOctober 3, 2018
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Turkey’s inflation rate jumped to 24.5 percent in September from 11.2 percent a year earlier, hitting its highest level since August 2003, as the impact of the country's currency crisis continued to hurt the economy

The rise in consumer price inflation was driven by mounting furnishing and household equipment costs which rose 37.28 per cent, followed by transportation costs, which surged 36.61 percent;  and miscellaneous goods and services which increased 30.61 percent. Food prices -which make up nearly a quarter of the inflation basket- jumped 27.70 per cent while housing costs climbed to 21.84% according to the Turkish Statistical Institute (TÜİK).

The inflation rate is almost five times the Turkey's Central Bank's (TCMB) target of 5 percent,  almost double its 2018 forecast and came in despite a 625 basis points hike in the benchmark interest rate on September 13th.

"The key point to note here is that headline inflation is above the central bank's forecast. The central bank will need to react to this print. This is not something that could be ignored and they will have to hike at their next meeting," Inan Demir, senior emerging market economist at Nomura told Reuters. 

However, not all analysts agree the TCMB would increase rates at its next meeting this month.

“Given the scale of last month’s rate hike and continued pressure from President Erdogan for rates not to be raised further, we think that policy will be left on hold,” said Jason Tuvey of Capital Economics in a note, according to the news agency.

turkish inflation

Monthly consumer inflation rate 
The monthly inflation rate was 6.3 percent, the worst since April 2001. The highest monthly rise was in the cost of  furnishing and household, up 11.41 percent, transportation, up 9.15 percent, miscellaneous goods and services, up 7.42 percent, recreation and culture, up 6.62 percent while prices for food and non-alcoholic drinks were up 6.40 percent, TÜİK said in a statement. 

The highest monthly increase was 8.12% in Gaziantep, Adıyaman and Kilis

The highest increases in CPI were recorded in Trabzon, Ordu, Giresun, Rize, Artvin, Gümüşhane region with 22.88% compared with the December of the previous year, Trabzon, Ordu, Giresun, Rize, Artvin, Gümüşhane region with 28.30% compared with the same month of the previous year and in Hatay, Kahramanmaraş, Osmaniye region with 15.32% on the twelve months moving averages basis, TÜİK said.

Producer inflation 

Another report from the statistical office showed that domestic producer price index (D-PPI) increased sharply to 46.15 percent in September from 32.13 percent a month ago. This was also bigger than the expected 39.6 percent.The highest rates of monthly increase in D-PPI by sub divisions of industry were index for electricity,gas products by 40.21%, for crude petroleum and natural gas by 16.95%, for chemicals and chemical products by 13.74%.

Lira dips as inflation soars 

After the inflation data release, the lira fell as much as 1.6% against the dollar before paring losses to trade 0.8% weaker in Istanbul. The currency has lost about 40 percent of its value against the US dollar since the start of the year, hit by various economic concerns including the imposition of trade tariffs by U.S. President Donald Trump. It also reached record lows in August due to a diplomatic spat between Washington and Ankara over Andrew Brunson, a detained American pastor.

Analysts have said that the next important event for the lira will be the trial of Brunson. The next court hearing on Brunson's case is on Oct 12. 

Inflation Rate in Turkey averaged 35.08 percent from 1965 until 2018, reaching an all time high of 138.71 percent in May of 1980 and a record low of -4.01 percent in June of 1968 according to Trading Economics.